Goldman Sachs has long had a reputation for refusing to represent clients in hostile takeovers. Particularly during the 1980s, when raiders roamed about looking for easy corporate targets, this policy allowed Goldman to develop strong bonds with clients who thought they need never worry about its using confidential information against them.
But this is a new era, in which hostile takeovers are more strategic than financial. Today's deals are undertaken by corporations, not individual players, and are viewed as more brutal, with the stakes higher than ever. And hostile deals are becoming more acceptable. Investment bankers say those firms that don't suggest hostile approaches as an option for their clients aren't doing their job - and they might end up losing business as a result.
Goldman seems to be adjusting. During the past six months, the firm has engaged in three hostile takeover attempts, helping take it to the top of the M&A league tables in the US and worldwide. Its role in these takeover battles leads to speculation that there is a change of policy. "Goldman still like to say they don't do hostiles," says one competitor, "but if they think they can get away with it, they will. It's a policy that can be broken at the right time, in the right situation and for the right corporate client."
Mac Heller, Goldman managing director and global head of M&A, acknowledges that the firm has no written policy forbidding hostile takeovers. When asked what the firm's policy is, he says only: "Friendly deals are the preferred way of doing business".
He adds that Goldman "could possibly consider doing an unsolicited offer if a long-term client asks us to". But he admits that the bank hasn't agreed to do the deal every time a client has made such a request. "It's a balancing of many things," he says. "We've done them rarely, and reluctantly. The defence franchise will always be a key core business of Goldman Sachs full stop. We will never be the raider firm of choice."
However, in the deals it has taken on recently, Goldman has occasionally worked opposite long-term clients, and it has represented clients with which, competitors feel, its relationships aren't particularly strong. M&A bankers suggest opportunism has dictated the advisory roles as much as anything. And some corporate executives say the firm's partnership structure creates tensions between different parts of the firm, which are often in conflict with each other and with clients. "It's all about the partners' money," says one.
To understand Goldman's policy, and whether it is changing, definitions are crucial. Some bankers prefer to use the terms "contested" or "unsolicited" to define what is hostile. A contested bid is one in which two or more parties are vying to buy the same company. An unsolicited bid occurs when the target company hasn't approached the would-be buyer. Both are considered hostile because of the inherent conflict involved. There are also various stages which a hostile bid goes through. The first is often a so-called "bear hug", in which a prospective buyer more or less threatens to acquire an unwilling target company, and the final stage (at least in the US) involves acting as a dealer/manager on a tender offer for shares filed with the SEC.
Until recently, Goldman has typically declined to work on the last stage of a hostile offer. It has refused to act as a dealer/manager on a tender offer not solicited by the target's board of directors, except in one case, which was Standard Ohio's unsolicited bid for BP North America in 1987.
"That's how they drew the line," suggests one competitor. In representing BAT Industries in its $5 billion hostile takeover of Farmers Group in 1988, for example, Goldman acted as financial adviser and hired what was then Shearson Lehman Hutton to arrange the tender offer.
Such posturing meant that in the past Goldman "always used someone to front them", says a competitor, "to avoid breaking their policy". But it was just semantics: a hostile deal, says an M&A bankers, is when "your only ability to move the transaction forward requires unsolicited action, which ultimately means public action". On that basis all three of this year's deals qualify as hostile.
Murky business
One change this year has been Goldman's willingness to act as the dealer/manager in a tender offer. Heller says it's merely a technical change more in tune with today's markets. Historically, the dealer/manager had the task of finding and gathering shares. Before the 1980s that could take months. In today's fast-moving markets, with large chunks of stock held by institutional owners, it happens quickly. But that was becoming the case in 1988, when Goldman refused the dealer/manager role for BAT.
That coyness during the 1980s helped make Goldman the defender of choice for many corporations. "This policy is based in economic reality and self-interest; it's very smart," says a former Goldman M&A banker. "It's not like they're up on a soapbox and holier than thou." At the same time, he admits the policy is instituted on a case-by-case basis. "It's a very murky business," he says, seeing this year's hostiles as an indication that Goldman is "getting a little closer to the edge".
As Goldman has become even more aggressive in hunting down deals, it has become number one in the league tables for world-wide and domestic M&A deals completed so far this year, when advisers to both target and acquirers are combined, according to Securities Data. Last year Goldman ranked second, while Morgan Stanley was first. This year so far the positions have reversed.
The three deals this year that have thrown a new light on Goldman's position are the Newmont Mining's $2.5 billion takeover of Santa Fe Pacific Gold, Harcourt General's $800 million deal for National Education Corp, and Krupp Hoesch's unsuccessful $8 billion takeover of steel giant Thyssen in Germany.
Goldman's new hostile posture started in December when Newmont Mining chairman Ronald Cambre sent a "bear-hug" letter to Santa Fe, triggering one of the bitterest takeover battles in gold-mining history.